Going vertical

Cost management in a new era of steel integration

Rising raw material prices and a greater desire by some steel producers for self-sufficiency will likely drive more upstream moves, according to a new report, Going vertical: Cost management in a new era of steel integration, released by the Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry group.

There is no doubt that steel manufacturing in 10 years may have a very different look than it does today. Horizontal consolidation in what is a largely fragmented market is sure to continue. And this scale may be just the thing to battle the oligopoly within the raw materials sector.

Until then, though, it appears that vertical integration may be one way for steel manufacturers to win competitive advantage and control costs in this uncertain economy. As the world economies recover and the middle classes of the BRIC countries continue to grow, demand for steel will intensify. To meet the needs of this new customer base and improve margins, downstream moves make a lot of sense. But it is the uptick in upstream that is today’s headline—with steel’s quest to control raw materials a nod to the past as the industry looks to the future.

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